Getting wild

Live life on the edge

There
is no denying it anymore; money is tight and it will be for quite some time.
The current mortgage and loan outlook is grim at best, leaving many future
borrowers to wonder when everything will finally turn around.

How Long Can the Housing Slump Last?

Unfortunately
the answer to that seems to be further out than the current prognosticators
think. Additionally, the problem goes beyond the current subprime market woes
and has spread to the greater credit markets. It turns out that lenders have
simply been too loose in their underwriting standards and that fact is now
coming back to bite them and their customers alike.

It
begins with the subprime debt market. As more and more consumers begin to
default, the value of subprime mortgages fall. In a vacuum this fact would be
just another normal cycle of business, calling for a moderate market
correction. However, combined with the declining real estate market values and
the tightening of lenders’ pursue strings, this snowball turns into an
avalanche.

The
cause and effect of this situation is quite ominous. At first many banks were
not concerned with defaults because strong property values acted as good
downside protection in the event of a default. Conversely, as more and more
consumers began to default, banks saw the need to tighten their lending
practices. This act, combined with the increased defaults, led to lower real
estate values, effectively removing many banks’ downside protection.

Where Will the Real Estate Market Go from
Here?

Widespread
panic has set in. As property values drop below mortgages for many new home
buyers, the incentive to continue paying off their debt declines. For many
people who struggle, it will be easier to simply give the home back to the bank
and move into an apartment. Banks are not in the property business, so they
then try to move their properties as quickly as possible, often selling at below
market values and decreasing the potential value of homes in many markets.

The
sad truth is that this is the beginning of a cycle that will probably repeat
itself for the next year or two. When the dust finally settles, the real estate
market will have experienced low, no, or negative growth and the rate of
homeownership will decline significantly from its current record high.

What Should Buyers and Sellers Do Now?

Advice
to sellers: Wait if at all possible. In many markets, sellers will be competing
against bank foreclosures and real estate developers giving deep discounts. In
most markets sellers should expect longer and longer time on the market and a
significantly reduced number of offers. Additionally, these offers will
probably come in 10% or more under the asking price. Now is not the time to be
greedy. If there is a good offer on the table, strongly consider taking it.

Advice
to buyers: Wait if at all possible. Everything points to this situation getting
worse before it gets better. In a year many sellers will be desperate and many
neighborhoods will experience a price decline. This will be a great time to buy
new homes straight from a developer or to look into foreclosed properties.
Banks will entertain all offers, so negotiate. Get a great agent and make them
earn their commission.

The
majority of young people can’t afford to enter higher education without taking
on at least some college student loan debt. According to FinAid, 65.6% (almost
two-thirds) of 4-year undergraduate students left university with owing money.
Excluding PLUS loans, the average amount of student loan debt owed by seniors
stood at $23,186. Whilst repaying this money can usually be deferred for up to
3 years, this is not a long term solution. Student loan default doesn’t provide
the answer either. In fact, defaulting will result in fewer federal options
being available to deal with any future financial difficulties.

Why College Student Loan Debt is Difficult to
Eliminate

Unlike
unsecured loans and credit cards, it is not normally possible to file for
student loan bankruptcy in order to clear college loan debt. This is because
allowing this would open the floodgates for unprecedented levels of bankruptcy
amongst desperate graduates. The only exception to this rule is those who have
a permanent illness that seriously effects their earning potential. It would
need to be demonstrated that student debt repayment would bring serious
financial hardship on a family. As it stands under the current laws, any money
that is borrowed to fund university will need to be repaid.

An Income Based Repayment Plan to Clear
College Loan Debt

The
College Cost Reduction and Access Act of 2007 introduced a new method of student
debt repayment, the income-based repayment plan. It came into force on the 1
July 2009 and now allows a graduate to repay the money they owe at an
affordable rate. The graduate will pay 15% of the difference between the
poverty line income ($10,830) and their own annual income. This means that, if
that person earns $30,000 a year, they will make a monthly college student loan
debt repayment of just $239.63. Although it will be taxable, after a period of
25 years, any outstanding debt will be written off.

Pay Back Student Loans at an Affordable Rate
No
matter how bad things may seem, never default on a student loan as this doesn’t
provide the answer. Always talk to the lender. An income based repayment plan
can provide significant student debt relief because it not only allows that
person to reduce their repayments, there is also light at the end of the
tunnel. Although any remaining college loan debt will be written off after a
period of 25 years has elapsed, under existing Inland Revenue Service (IRS) rules,
it is still taxable.